Software Patents: The Federal Circuit Goes on a WildTangent

In the next few weeks, the U.S. Supreme Court will decide whether to grant certiorari in the patent dispute between WildTangent and Ultramercial.  The case, if heard by the Court, would be a suitable vehicle to provide guidance on how 35 U.S.C. § 101 applies to computer implemented inventions.  In essence, the question presented would read something like:  At what point does a method patent on an otherwise abstract concept sufficiently claim reference to a computer (or computer-implemented service like the Internet) to make such an abstract concept patent eligible under 35 U.S.C. § 101?  To put this question in context, here’s a little background on the parties involved and the lower courts’ decisions.

The Infringer: WildTangent

WildTangent operates a games service that allows consumers around the world to access downloadable, online, and social games via the Internet. WildTangent’s service reaches over 20 million monthly gamers in the United States and Europe with a catalog of more than 1,000 games from nearly 100 developers.  Rather than paying to play, consumers can let an advertiser sponsor free game play sessions. To do so, the consumer must agree to display an advertisement before he is given access to the game.

The Patent Holder: Ultramercial, LLC

According to Ultramercial’s website, Ultramercial is a technology company that offers patented financial engines for monetizing online content along with integrated end-to-end solutions.  They developed an ad model consisting of “interactive, full-page ads that are always served in exchange for premium content or services.”  Ultramercial, more importantly for this post, is the patent holder of U.S. Patent No. 7,346,545 (the ‘545 patent).  The ‘545 patent claims a method for distributing copyrighted products (e.g., songs, movies, books) over the Internet where the consumer receives a copyrighted product for free in exchange for viewing an advertisement, and the advertiser pays for the copyrighted content.  You know, kind of like this:

The Dispute

In 2011, WildTangent challenged a ruling that it had infringed the ‘545 patent owned by Ultramercial, LLC.  Specifically, the ′545 patent claims a particular internet and computer-based method for monetizing copyrighted products, consisting of the following steps:

(1) receiving media products from a copyright holder, (2) selecting an advertisement to be associated with each media product, (3) providing said media products for sale on an Internet website, (4) restricting general public access to the media products, (5) offering free access to said media products on the condition that the consumer view the advertising, (6) receiving a request from a consumer to view the advertising, (7) facilitating the display of advertising and any required interaction with the advertising, (8) allowing the consumer access to the associated media product after such display and interaction, if any, (9) recording this transaction in an activity log, and (10) receiving payment from the advertiser.

At issue was whether Ultramercial’s process-type patent (also referred to as method patents) claims an abstract idea.  If so, the patent should be held invalid as abstract ideas have long been held to be non-patentable subject matter.  WildTangent argued that the idea of using advertising as a form of currency is abstract and vague, like the abstract concept of hedging, which proved patent-ineligible in the Supreme Court’s Bilski decision.  Not persuaded, Judge Rader, writing for the Court of Appeals for the Federal Circuit, upheld Ultramercial’s patent, stating that it “does not simply claim the age-old idea that advertising can serve as currency. Instead [it] discloses a practical application of this idea.”

Then, once again, after being ordered by the Supreme Court to reexamine the case in light of the Court’s Mayo decision, the Federal Circuit upheld its decision this past June and ruled that Ultramercial’s patents were not ineligible subject matter.

The Law of Patent Eligibility under Section 101

Section 101 of the Patent Act establishes the subject-matter eligibility requirement for all patents. It provides that “whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.” Section 101’s subject-matter eligibility is considered a threshold check, since the actual patentability of a claimed invention ultimately depends on more rigorous conditions, such as novelty, non-obviousness, and adequate disclosure.

Nevertheless, case law has established three categories of subject matter that fall outside the eligibility bounds of § 101: (1) laws of nature, (2) natural phenomena, and (3) abstract ideas.  As the Supreme Court explained in its Bilski decision, these non-patentable categories are considered the “the basic tools of scientific and technological work” and accordingly they are “part of the storehouse of knowledge of all men” and women.  Judge Rader, writing for the Federal Circuit, explained “an abstract idea is one that has no reference to material objects or specific examples—i.e., it is not concrete.”

A claim can embrace an abstract idea and be patentable when drawn to an application of that idea.  On the other hand, a claim is not patent eligible if the claim is to the abstract idea itself.  The inquiry here is to determine on which side of the line the claim falls: does the claim cover only an abstract idea, or instead does the claim cover an application of an abstract idea?  In determining on which side of the line the claim falls, the relevant inquiry is whether a claim, as a whole, includes meaningful limitations restricting it to an application, rather than merely an abstract idea.

Okay, but what exactly does “meaningful limitation” mean?  Well, it’s helpful, for starters, to describe what “meaningful limitation” does not mean.

First, if a claim covers all practical applications of an abstract idea, it is not meaningfully limited.  This much is not hotly disputed.  That is, it is well settled law that if a claim preempts all practical uses of an idea, then it is not patent eligible.  For example, one cannot claim the formula for converting binary-coded decimal numerals to pure binary numerals because this mathematical formula has no substantial practical application except in connection with digital computing.

Second, going a step further, it is also well established that even if a claim does not entirely preempt all application of an abstract idea, courts will still not find meaningful limitation to the extent the claim contains only insignificant constraints on the use or implementation of the invention.  For example, simply tying the claim to a relevant audience, a category of use, field of use, or technological environment will not carry the day; the claim will still be deemed patent-ineligible.

So now that it is clear what “meaningful limitation” is not, here’s where courts come out on the much less settled law of what “meaningful limitation” is.  A claim is said to be meaningfully limited if it requires a particular machine implementing a process or a particular transformation of matter.  A claim also will be limited meaningfully when, in addition to the abstract idea, the claim recites added limitations which are essential to the invention. In those instances, the added limitations do more than recite pre- or post-solution activity, they are central to the solution itself. And, in such circumstances, the abstract idea is not wholly pre-empted; it is only preempted when practiced in conjunction with the other necessary elements of the claimed invention.

The Federal Circuit’s Questionable Rationale

When assessing computer implemented claims, the Federal Circuit admits that the mere reference to a computer will not save a method claim from being deemed too abstract to be patent eligible.  However, in the same opinion, the Federal Circuit stated that the fact that a claim is tied to a computer is, nevertheless, an important indication of patent eligibility.  In Judge Rader’s opinion, “this tie to a machine moves it farther away from a claim to the abstract idea itself […] [and] makes it less likely that the claims will pre-empt all practical applications of the idea.”  The Federal Circuit goes even further and finds “meaningful limitation” when a claim references a computer in such a way that the computer plays a meaningful role in the performance of the claimed invention.  The difficulty in the standard created by the Federal Circuit is that “meaningful limitation” in the context of a computer-based method patent is now defined as one in which the computer plays a “meaningful role”.  This, to legal practitioners and research-and-developers alike, is a difficult concept to implement and strategize around.  One might even go as far as to say that the “meaningful limitation” standard is itself an abstract idea under the Ultramercial decision.

Ultimately, the Federal Circuit’s decision seems to rely heavily on procedural considerations.  As the Federal Circuit stated, “the district court erred in requiring the patentee to come forward with a construction that would show the claims were eligible. The district court held the asserted claim to be ineligible because it is “abstract.” In this procedural posture, the complaint and the patent must by themselves show clear and convincing evidence that the claim is not directed to an application of an abstract idea, but to a disembodied abstract idea itself.”

It would seem that the Supreme Court could – and should – provide useful guidance on this notion.  Otherwise, seemingly, any claimed invention that simply invokes computers or applications of computer technology would survive summary judgment and be put to a trier of facts, which of course would likely have significant impacts on the costs and burdens associated with patent litigation.